Large-Cap Pharmaceuticals Industry Near-Term Outlook Bright
Zacks Investment Research | Jul 23, 2019 09:44PM ET
The Zacks Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.
The Zacks Large Cap Pharmaceuticals industry currently carries a Zacks Industry Rank #48, which places it in the top 19% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few large drug stocks that are well positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s stock-market performance and its current valuation.
Industry Underperforms Sector & S&P 500
The Zacks Large Cap Pharmaceuticals industryis a 14-stock group within the broader Medical sector. It has underperformed the S&P 500 and the Zacks Medical Sector on a year-to-date basis.
While the stocks in this industry have collectively declined 1.3% year to date, the Zacks S&P 500 composite and the Zacks Medical Sector have increased 2.7% and 17.4%, respectively.
Year-to-Date Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), a commonly used multiple for valuing large pharma companies, the industry is currently trading at 14.35X compared with the S&P 500’s 17.21X and the Zacks Medical sector's 20.00X.
Over the last five years, the industry has traded as high as 18.10X, as low as 13.94X and at a median of 15.76X as the chart below shows.
Forward 12 Month Price-to-Earnings (P/E) Ratio
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Bottom Line
In order to succeed in a changing global market and evolving healthcare landscape, pharmaceutical companies need to adopt innovative business models, invest in new technologies, raise investments in personalized medicines and seek external partners and collaborators for complementary strengths.
The sector may face some volatility due to the drug pricing issue, pricing/re-imbursement pressure, stiff competition, sluggish legacy product sales, loss of patent exclusivity of some key drugs and pipeline related setbacks. However, pipeline success in innovative and important therapeutic areas, cost control, share repurchases, product introductions, heightened M&A activity and appropriate utilization of cash should put the sector on a firm footing as the year progresses.
In the Large Cap Pharmaceuticals universe, five companies have a Zacks Rank #2 (Buy). Most of these have witnessed positive earnings estimate revisions in the past 30 days.
You can see .
Roche Holding (SIX:ROG) AG (RHHBY): Shares of this Swiss drugmaker have gained 9.2% this year so far. The Zacks Consensus Estimate for current-year EPS has been revised 2.9% upward over the past 30 days. Roche carries a Zacks Rank #2.
Price and Consensus: RHHBY
Merck & Co., Inc. (MRK): The Zacks Consensus Estimate for this Kenilworth, NJ -based drugmaker’s current-year EPS has remained stable over the past 30 days. Merck has a Zacks Rank of 2. The stock has risen 7.4% so far this year.
Price and Consensus: MRK
Sanofi (PA:SASY) (SNY): The stock of this French drugmaker has moved 1.8% downward year to date. However, the Zacks Consensus Estimate for this Zacks #2 Ranked company’s current fiscal EPS has been raised 0.3% over the past 30 days.
Price and Consensus: SNY
Bayer (DE:BAYGN) Aktiengesellschaft (BAYRY): This Leverkusen, Germany-based drug giant has seen a 2.1% decline in share price so far this year. However, the Zacks Consensus Estimate for this #2 Ranked stock's current-year EPS has increased 5.8% over the past 30 days.
Price and Consensus: BAYRY
AbbVie, Inc. (ABBV): This North Chicago, IL based drugmaker, which recently offered to buy Allergan (NYSE:AGN) plc, has seen a 26.5% decline in share price so far this year. However, the Zacks Consensus Estimate for this #2 Ranked stock's current-year EPS has increased 0.1% over the past 30 days.
Price and Consensus: ABBV
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